Cap and trade in America

29 June 2009

The USA has moved to cap emissions and trade them down to 17% below 2005 levels by 2020. It has detractors, but the bill is a landmark in fighting climate change.


The American Clean Energy and Security Act was passed by the House of Representatives on 26 June and now goes to the Senate, after which President Barack Obama could sign it into law. The bill contains a slew of incentives and targets concerning carbon capture and storage, electric cars and the smart grid. The most significant however is the specification of a series of milestone emission caps.


By 2012 greenhouse gas emissions are to be reduced 3% below 2005 levels; followed by 17% below 2005 by 2020; 42% by 2030 and 83% by 2050. Between these milestones, each year will have its own emissions allowance. This kind of pathway to a low-carbon energy system allows firms and lawmakers to invest and plan for the long term.


The principal method of reaching the targets is to trade a group of carbon-dioxide equivalent greenhouse gases under a federal greenhouse gas registry. Under threat of penalty for non-compliance, a group making up 85% of US emissions is to be required to hold credits equivalent to their annual emissions, or use offset credits to make up the difference. To facilitate this, a small fraction of annual emissions credits will be auctioned each quarter by the government, and exchange with international systems will be made possible.


Certain energy-intensive industries will get rebates of carbon emissions allowances, which has angered environmental groups that say too many industry lobbyists have forced their interests into the legislation. The groups are also disappointed that renewables and efficiency are lumped together in a system of targets focused on electricity. Utilities must meet 6% of 2012 demand from a combination of renewables and efficiency, with this increasing to 9.5% in 2014, 13% in 2016 and 16.5% in 2018 and 20% from 2021-2039.


However, all low-carbon options stand to benefit indirectly when competing fossil sources face costs from carbon trading. The American system should be more stable than the European Emissions Trading Scheme, which sets its caps every five years, and this should help utilities and investors predict the real effects of the system on project economics.


The bill also contains positive developments for nuclear in the shorter term. It establishes a new Clean Energy Deployment Administration (CEDA), which should make the system of loan guarantees - as well as other modes of financial help - quicker and simpler for utilities wanting to build.


The US Nuclear Energy Institute welcomed CEDA. "These provisions can help mobilize private capital and facilitate debt financing on reasonable terms for the first wave of nuclear plant projects to help reduce uncertainties and ultimately lower the cost to consumers." said Alex Flint, in charge of government affairs for the industry group.